By Nigam Arora & Dr. Natasha Arora
To gain an edge, this is what you need to know today.
Reduce Hedges
Please click here for a chart of Microsoft (MSFT).
Note the following:
- The sum total of everything that we have been sharing in the Morning and Afternoon Capsules is that it is time to reduce hedges. Please see the “Protection Bands and What To Do Now?” section.
- The Morning Capsule is about the big picture and not about an individual stock. The chart is of MSFT, a megacap, to illustrate the point.
- The chart shows when MSFT reported earnings.
- The chart shows a very large move on earnings. Such a large move for a megacap stock is not common.
- The reason for such a large move was that smarter players were hunting for the stops of less knowledgeable investors.
- The chart shows that when the selling was at its peak The Arora Report issued a buy signal with a new buy zone. At the time of the buy signal, the stock was trading at $271.36. The stock is trading at $304.79 as of this writing, an up move of $33.43 or 12% in a short time.
- A major financial publication headlined a negative article about MSFT earnings that put further pressure to the downside.
- MSFT earnings were above the consensus and slightly below the whisper numbers. The market immediately drew an inference from the reported numbers being slightly less than the whisper numbers that the guidance would be below the consensus.
- The chart shows when guidance was given on the conference call. The guidance was slightly above the mid point of the consensus but still below the whisper numbers.
- The chart shows a very big move on guidance. Such a big move up on guidance that was still below the whisper numbers was unusual.
- According to our algorithms, the reason for such a big move up on guidance was a short squeeze.
- The VUD indicator is the most sensitive measure of net supply demand in real-time. The orange represents net supply and the green represents net demand.
- The chart shows that the VUD indicator was solid orange, indicating strong supply during the stock drop.
- The VUD indicator was also orange during the early rise indicating a strong supply of stock as the stock was rising. This pattern is one of the characteristics of a short squeeze when accompanied by a rapid rise.
- It took the crowd a while to catch up. As the crowd caught up, the VUD indicator turned solid green, indicating strong demand. The strong demand continues as of this writing, but there are preliminary indications that selling is going to come in as those who bought at the bottom take profits.
- After the stock rise, we were receiving a large number of questions from subscribers who had bought a tranche at the bottom in response to the buy signal wanting to take profits on the new tranche. A signal was issued that there was merit to taking such profits.
- It is worth repeating that the foregoing is not about MSFT but to illustrate both the market mechanics and how investors are reacting to the news at this time of market turbulence.
- The foregoing also illustrates that most of the methods being taught these days by gurus to retail investors lead to losses as professionals pick the pockets of the retail investors. Investors wanting to deepen their knowledge should consider attending the Bullet Proof seminar if you have not already done so.
Fed
The Fed will announce its decision at 2:00 pm ET. This will be followed by a Powell press conference at 2:30 pm ET.
The consensus is for a 0.25 point interest increase and reducing the balance sheet starting in June.
Momo Crowd And Smart Money In Stocks
The momo crowd is 🔒 (To see the locked content, please take a 30 day free trial) stocks in the early trade. Smart money is 🔒 stocks in the early trade.
Gold
The momo crowd is 🔒 gold in the early trade. This is unusual. Typically the momo crowd buys gold ahead of the Fed meeting. This may indicate a major shift in behavior as the Fed starts to tighten. If this behavior persists, it will be negative for gold and gold stocks.
Smart money is 🔒.
For longer-term, please see gold and silver ratings.
Oil
The API data showed a draw of 872K barrels vs. 400K barrels consensus.
EIA data will be released at 10:30 am ET.
The driving force for crude continues to be the potential Russian invasion of Ukraine.
The momo crowd is 🔒 oil in the early trade. Smart money is 🔒.
For longer-term, please see oil ratings.
Markets
Our very, very short-term early stock market indicator is 🔒. This indicator, with a great track record, is popular among long term investors to stay in tune with the market and among short term traders to independently undertake quick trades.
Interest rates and bonds are range bound.
The dollar is stronger.
Trading futures is not recommended for most investors. The purpose of providing this information is to give an indication of the premarket activity that usually guides the activity when the market opens.
Gold futures are at $1835, silver futures are at $23.78, and oil futures are $86.56.
S&P 500 futures resistance levels are 4460, 4600, and 4713: support levels are 4400, 4318, and 4200.
DJIA futures are up 255 points.
Protection Bands and What To Do Now?
It is important for investors to look ahead and not in the rearview mirror.
Consider continuing to hold existing positions. Based on individual risk preference, consider holding 🔒 in cash or treasury bills or short-term bond funds or allocated to short-term tactical trades, and short to medium-term hedges of 🔒, and short term hedges of 🔒. This is a good way to protect yourself and participate in the upside at the same time.
You can determine your protection bands by adding cash to hedges. The high band of the protection is appropriate for those who are older or conservative. The low band of the protection is appropriate for those who are younger or aggressive. If you do not hedge, the total cash level should be more than stated above but significantly less than cash plus hedges.
It is worth reminding that you cannot take advantage of new upcoming opportunities if you are not holding enough cash. When adjusting hedge levels, consider adjusting partial stop quantities for stock positions (non ETF); consider using wider stops on remaining quantities and also allowing more room for high beta stocks. High beta stocks are the ones that move more than the market.
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Nigam Arora
Nigam Arora is known for his accurate stock market calls. Nigam is a distinguished master of the macro. He is a popular columnist with over 100 million page views, an engineer, and nuclear physicist by background. Nigam has founded two Inc. 500 fastest growing companies and has been involved in over 50 entrepreneurial ventures. He is the developer of Theory ZYX of Successful Change Management and is the author of the book on Theory ZYX, as well as the developer of the ZYX Change Method for Investing.
Dr. Natasha Arora
Dr. Natasha Arora has significant expertise in investment analysis especially biotech, healthcare, and technology. Natasha is a graduate of Harvard Medical School followed by a postdoc at MIT. She has published several peer reviewed research papers in top science journals.
